We get the Fed tomorrow.

Despite the Trump pressure campaign of the past month, the interest rate market expects no change on rates.

If that’s the case, we should get two dissenters.  Remember, over the past month, two voting Fed members have said they favor a rate cut at this meeting — both of which are voices respected by the Fed Chair (Powell).  

It was Bowman’s big speech last month that revealed the Fed’s plan to finally reform the bank leverage ratio rule that has been distorting liquidity, and creating unnecessary liquidity risk in the U.S. Treasury market.  In the same speech, she said: “should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting.”

A few weeks later, fellow Fed Governor Chris Waller delivered a speech titled, “The Case for Cutting Now.”

He went further, in an interview on Bloomberg to openly admit that the Fed hasn’t followed “the data,” and instead has been (his words) “on pause for six months thinking that there was going to be a big tariff shock to inflation” — a view Waller called counter to economic theory.

So, could these two nudge Jerome Powell to their side, which would likely mean a cut?  

In the Bloomberg interview, Waller also referenced the July 2024 meeting (last year), implying the Fed’s mistake for stubbornly leaving rates unchanged (at historically high real rates) for a twelfth consecutive month. 

And that meeting came just days after the Bank of Japan took another step toward exiting its role as the global liquidity provider, by raising rates for a second time since 2007 — and they signaled more to come.  

The Fed had an opportunity to counter market fears of tightening global liquidity, by beginning an easing cycle.

In the press conference, Jerome Powell even made a good case for why they should have cut. 

But as Waller said, they didn’t.

Two days later, we got a weak jobs report.  We got a break down in stocks — a plunge of 8% over three days in the S&P.  And we had one of the sharpest declines in Japanese stocks on record, and an unraveling of the carry trade.  And by September, we got the 50 basis point cut from the Fed.

So, we have another jobs report this Friday.

And over the past two years, the Fed has consistently identified “cracks” in the job market, as their stated condition to “react” (in Jerome Powell’s words) with a policy response.

With that, Waller said in his Bloomberg interview, the job market, “underneath the surface” is not doing well. 

And he used the analogy of walking on ice — he said, “when you start hearing cracks … it’s too late.”

With all of the above in mind, we know Jerome Powell should be highly sensitive to the phrase “too late.”